On the existence of efficient multilateral trading mechanisms with interdependent values

This paper studies multilateral trading problems in which agents’ valuations for items are interdependent. Assuming that each agent’s information has a greater marginal effect on her own valuation than on the other agents’ valuations, the paper identifies a necessary and sufficient condition for the existence of trading mechanisms satisfying efficiency, ex-post incentive compatibility, ex-post individual rationality, and ex-post budget balance. The paper presents a trading mechanism that satisfies the four properties when the necessary and sufficient condition holds and shows that this mechanism maximizes the ex-post budget surplus among all efficient, ex-post incentive compatible, and ex-post individually rational trading mechanisms. The paper examines an environment where each agent can possess at most one unit of an item, and her information about the item is one-dimensional. It then extends the results to two general environments: the multiple units environment and the multidimensional information environment.